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Broker's take: OCBC says 'worst likely over' for Mapletree NAC Trust

Festival Walk 3.jpg
The Reit's Festival Walk mall had been shuttered since Nov 13 due to damage sustained from protests in Hong Kong, which resulted in no rentals being collected.

OCBC Investment Research on Monday increased its fair-value estimate for Mapletree North Asia Commercial Trust (MNACT) slightly to S$1.37 from S$1.36, while maintaining its "buy" call.

The research team also said in its note that it believes "the worst is likely over" for the real estate investment trust (Reit), as the bulk of the closure period of its Festival Walk mall in Hong Kong had taken place in the third quarter of fiscal 2020 ended Dec 31, 2019. However, uncertainties remain, OCBC noted.

The mall reopened on Jan 16 - earlier than the management's previous expectations. It had been shuttered since Nov 13 due to damage sustained from protests in Hong Kong, which resulted in no rentals being collected.

"Notwithstanding the ongoing political unrest in Hong Kong, we note that MNACT has insurance coverage on physical damage and business interruption which covers for the loss of rental income, although there is no visibility yet on the amount and timeline of the insurance claims," OCBC wrote.

On Friday night, MNACT posted a 13.3 per cent year-on-year drop in distribution per unit (DPU) for its third quarter ended Dec 31 to 1.671 Singapore cents. This was because it implemented a distribution top-up of S$25.8 million or about 0.809 Singapore cents per unit to mitigate the impact of Festival Walk's closure on the distributable income payable to unitholders.

However, MNACT on Friday said it will not provide further distribution top-ups in Q1 FY2021 ending June 30, 2020, due to the earlier-than-expected reopening of the mall. The trust's managers originally intended to implement top-ups over three quarters, from Q3 FY2020 to Q1 FY2021.

OCBC said it raised MNACT's fair value because of the drop in the estimated number of units to be issued for management fees given the recent recovery in MNACT's trading price.

"We opine that FY2021 distribution yield of 6.1 per cent (based on S$1.24 closing price) remains relatively attractive," the research team wrote on Monday.

OCBC added that MNACT's results for Q3 FY2020 were within its expectations.

Investment risks for the Reit include a slowdown in macroeconomic conditions which may dampen consumer and business sentiment, the continued escalation of Hong Kong protests, and a slowdown in portfolio rental reversions.

MNACT units were trading at S$1.25 on Monday on a cum-dividend basis as at 1.28pm on Monday, up one cent or 0.8 per cent.